Fronterion Releases Landmark Report on Legal Vendor Risk

8 September 2011 – Law firms’ professional liability insurance might not adequately cover the work of third-party legal vendors such as contract attorneys or legal process outsourcing (“LPO”) providers, according to a report published today by Fronterion.

The growing sophistication and widespread use of external attorneys in low-cost outsourcing centers has permanently changed the liability landscape for lawyers. Law firms and their insurers have yet to catch up, according to Fronterion, a leading LPO consulting firm.

The Fronterion Law Firm Liability Report comes as top 50 AmLaw firm McDermott Will & Emery faces one of the first reported malpractice lawsuits brought by a client over the work of external contract attorneys engaged to help review documents. The client claims an e-discovery firm employed by and acting under the supervision of McDermott handed over too many documents to prosecutors.

The case raises a number of important liability issues. For example, how liable are law firms for work performed by legal professionals outside of their firm? How often are the terms of traditional professional indemnity insurance precluding coverage for the work of third-party vendors acting for the law firm? In particular, are law firms uninsured and solely liable even if they are supervising vendors not directly contracted with their law firm? These developments seem to indicate that law firms might be increasingly obligated to pay damages themselves if a client sues over mistakes made by external vendors.

The Fronterion Law Firm Liability Report provides the first essential guide to liability and insurance issues arising from the growing use of contract attorneys, LPO firms, and other third-party legal vendors.

The report includes sample language and terms of professional indemnity insurance, demonstrating why these provisions might not adequately protect law firms against McDermott-type lawsuits. Additionally, the report offers a number of actionable steps firms can take to identify and reduce the risk exposures of legal vendors and, if the worst happens, ensure they have adequate coverage.

“The most exposed firms are not those operating on the fringe of the legal profession, but some of the most prominent and global law firms. Large law firms are often the most frequent users of third-party legal vendors, such as outsourcing and e-discovery firms,” he said.

“Yet, few firms have seriously considered the liability consequences of the use of third-party vendors, and fewer still have the right structures in place to help prevent a damaging lawsuit from arising in the first place.”

At approximately 40 pages and 14,000 words, the liability report is the most comprehensive resource available on issues of third-party vendor risk and liability exposures to law firms.

Additional topics covered include:

Standard policy clauses that may be limiting law firms’ coverage of vendors

Drivers reshaping legal vendor liability exposures

Nuanced contractual and vendor engagement structures

Risk mitigation procedures every law firm should consider

Preparation for negotiations with insurers in order to secure appropriate coverage statements

Fronterion is uniquely positioned to provide commentary on these complex and emerging liability issues. As an objective advisor to global law firms, exclusively on issues of legal outsourcing and alternative legal delivery, Fronterion provides an unrivalled depth of real-world industry knowledge about legal vendors. The Fronterion team is also well versed in liability and insurance issues. Fronterion staff contributing to this seminal report include insurance lawyers, certified public accountants, insurance executives, and university professors.